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Tuesday, March 8, 2011

Union Budget 2011-12: Comedy of Errors

Through this year’s Union Budget, Pranab Da has introduced a remodeling of vintage qualities that kept surfacing during his Budget speech. Stark fetishism started with an unknown nexus among godly characters of Indra, Laxmi and that finally ended with number 3- his own favourites in life and remorsefully in his party. As a follower of Budgetary exercises for years, I am yet disagreed with corporate and intellectuals like Bibek Debroy who sensing the ineffectiveness of Budget in general term…my incorrigible optimist mind still sticks to frame that sees public exercises of resource as most remarkable set of entitlement disbursement. Indeed this year’s Budget marks stout complexity within itself as it made by few finest brains from the exotic discipline of economics/finance…so in technical terms and at a glance perspective, it presents amusing leverage to populist temptations on which a democracy of our type rests.

Finance Minister, generously enhanced the remunerations of Aanganwari workers and teacher to double of theirs present Rs. 750&Rs.1500 albeit he failed to sense that it’s still less than minimum wage recommended by his own Government. In another move of social service, Budget introduced enhancement of old age pension from Rs.200 to Rs.500 but with an inhuman clause that makes eligibility quite tough at the age of 80…only good thing was the relaxation of age for attaining the senior citizenship from 65to 60. Fortunately it’s also worked out in personal Income tax with an enhanced exemption limit up to RS.2.5lakh…crest slab laid more relaxation to those above 80, to RS.5lakh. But alas, this maneuvering completely failed to see the changing demography of nation which facing acute shortage of savings among young and mid age segment…except slight tempering, that shot up the execution level to RS.1.80lakh and in women’s category, slab of RS.1.9lakh remained obstinate. Provision for tax-free infrastructure bonds extended by one more year, and a new income tax return form/SUGAM was proposed for small business that hardly symbolizes even a big ticket reform from any angle.

Amazingly, hand of Finance Minister suddenly found momentum while meeting Corporate turn-even excluding recent revenue foregone, in last six years, RS.3,74,937 Crore {twice of 2G Telecom Scam}worth of Corporate Income tax have written off. P.Sainath made the whole process most lucid in his article {Corporate Socialism’s 2G Orgy, The Hindu, Monday, March7,2011},”The Union Budget writes off RS.240 Crore in Corporate Income tax every single day on average the same amount leaves India each day the same amount leaves India each day in illicit fund flows to foreign banks . Moreover, revenue foregone on Gold/diamond touches RS.48,798 Crore which accounts double for wishful provision of PDS-Custom’s write off on Gold/diamond shot up to RS.95,675 Crore. Overall total revenue foregone on Customs duty in the present Budget rose to exorbitant level of RS.1,74,418 Crore excluding credit related numbers! Alas, if such obscene amount called be scrimped for address the suffering textile industry and overall manufacturing base which is in crying need of a big push to sustain the labour-work match of economy.

A section of observers are noticing that India is in surprisingly good fiscal shape despite populist spending, venal politics and bad-governance but they are summarily ignoring the huge cut in subsidies on Petroleum and fertilizer that will presents an unusual shock very soon in country amidst the problematic state of Gulf nations. On the revenue side, contentious DTC, MAT, DDT being regarded promising for midterm but euphoria will be short lived with the abysmal growth of 3.5%in expenditure with an exception of RS.3, 000Crore for oil subsidy bill. The statistical flex in fiscal deficit that fall from 5.5%to 5.1%-owing to rise in nominal GDP from RS.69.35 lakh Crrore to RS.78.78 lakh Crore in 2010-11; thanks to incessant inflation. This fortunate increase in nominal GDP further enhanced the debt to GDP ratio by 65%{Economic survey}against the projection of 76.8%[IMI}and 68%{Thirteenth Finance Commission}…but such boom is hardly justifiable with a foregone history of panic of price rise in public-distinct and much acute than Maslow’s hierarchy of needs.

The Union Government’s total expenditure as a proportion of GDP is projected to fall from 15.4% in 2010-11 to 14% in 2011-12, which reflects that expenditure fall for reducing deficits is the overarching feature of this Budget. Despite the claim of prioritization for social services in the Union Budget-expenditure fall on this segment from RS.1,62,501 Crore {13.4%of Budget, 2.1%of GDP}in 2010-11 to RS.1,65,975 Crore {13.2%of budget,1.8%of GDP}in current financial year, where a sharp rise was genuine due. Unlike the Kothari Commission/1966 and UPAI stand of minimum 6%public spending on education, currently the contribution of 3.39%{RS.1,89,324 Crore}is being spend from GDP. Union Government spending on education as a share of total Union Budget stand with 5.04% from 2.63% in 2004-05; Union Government spending on education as a share of GDP rose to 0.71%in 2011-12 from 0.4% in 2004-05. Announcement for scholarship among school students from Schedule Castes is a welcome step with a total allocation of RS.1469 Crore for this categories educational welfare but no special attention were given to STs, they have allotted a static RS.1265Crore. Another big concern is financing of Right to Education under SSA which will be fall short by RS.12,000 Crore annually despite a hike from RS.15,000 Crore to RS.21,000Crore in current year.

On health, total allocation of Budget has slightly moved up from 2.1%to 2.4%, combined expenditure of 1%-still far short of UPAI Common Minimum Programme of 2-3%.. NRHM given a 19%increase to RS.17, 920.76Crore which is still a meager amount to deal the need based services-NRHM/Rashtriya Swasthya Bima Yojana expanded to cover unorganized sector workers in hazardous mining and associated industries but ironically Budgetary allocation has reduced from RS.446 Crore to RS.280 Crore. No gender Budget statement has made for sanitation and water supply issue. Rural water supply received a timid increase from RS.8100 Crore to RS.8415 Crore and Rural sanitation from RS.1422 Crore to RS.1485 Crore. In Urban Water Supply and Sanitation, allocation for the integrated low cost sanitation programme has been reduced from RS.80 Crore to RS.71 Crore.

For Rural Development, RS.74,144 Crore has given which is up from RS.66,138 Crore/2010-11 but fallen short of Revised Estimate/2010-11 of RS.76,378 Crore. There is no noticeable provision has been made to strengthen Panchayati Raj Institutions through better financial devolution, even worst, outlay for Indira Awas Yojna has been reduced from RS 10,267 Crore in 2010-11/RE to RS.9896 Crore in 2011-12/BE. The flagship programme for rural employment/MGNREGS witnessed a fall of allocation from RS.40,100 Crore/2010-11,BE to RS.40,000Crore…what could be the logic here?

Agriculture met to most shocking treatment by this Budget-Union Government’s total expenditure on the rural economy has declined from 3.3%of GDP in 2008-09 to 2.3%of GDP in 2011-12/BE…most of scheme have cut short from funding between 10-40%. Ironically with fortunate number of 3, Pranab Da tried to revive the production of Pulses, Palm plantation, Millets with an allocation of RS.300 Crore each which is as good mockery as bringing green revolution in six eastern states with RS.400Crore. Overall expenditure on Agriculture and Allied Activities showed a marked fall from 15.7%in 2008-09 to 10.3% this year. The Union Government’s expenditure as a proportion of the GDP, also plummeted from 2.5%/2008-09to 1.4%in 2011-12.

Sharp decline from RS.1,64,253 Crore/RE to RS.1,43,570 Crore/2011-12,BE on Agriculture is most havocking feature of the Budget; completely defying the basic problems of inflation, food subsidy has been alarmingly reduced at RS.60,573 Crore which is less than amount provisioned in last Budget. Petroleum subsidy too had badly hammered by reducing from RS.38,386 Crore/2010-11,RE to RS.23,640 Crore in 2011-12/BE…situation would be more engraved by t he wrong provision of targeted/BPL Subsidy on fertilizer-this is the cruel joke for landless BPL Category and entire farming communities. Atleast RS.98,355 Crore would be immediately needed for covering the universal distribution of rice and wheat under Public Distribution System/PDS in the country. Case of cash transfer laid out in unclear and unrealistic way without framing even a tentative date of its execution…only miracle going to make possible the claim of 10lakh UID Card daily onward October1; this white elephant of Government has eaten so far more than $3billion and still unclear what it will make impact on public services.

Climate change has met to lip services by basic concessional and certain excise duty on vehicles excluding those using fuel cell tech; only RS.200 Crore sanctioned for Green Energy Mission under NCEF and another RS.200 Crore for cleaning of rivers except Ganga which is quite astonishing. Total magnitude of the Gender Budget has increased marginally from 6.1%to 6.2% with overall allocation for Ministry of Women and Child Development has registered an increase of only 13%. Increase for ICDS seems abysmal from RS.9370 Crore to RS.10,330 Crore…only solacing is women’s SHG Development Fund with an initial allocation of RS.500 Crore. As per statement 21, under Schedule Caste/SCs Sub Plan has increased to RS.30,551 Crore in 2011-12 from RS.23,795 Crore in 2010-11 but observing the pending demands that amount in inadequate and can’t create vision for long term development and empowerment of the SCs.

This Budget marked the separate statement to report allocations for SCs&STs{statement 21{A}in Expenditure Budget,Vol1}provides allocation for STs{RS.17,371 Crore from RS8990 Crore in 2010-11}. Allocation under Ministry of Tribal Welfare has increased from RS.3206 Crore in 2010-11/BE to RS.3674 Crore in 2011-12/BE…there is also an increase in the Budget allocation for primitive tribal groups from RS185 Crore in 2010-11/BE to RS.244 Crore in 2011-12/BE. On paper, it appears well albeit very few know how this money spends in reality?

Few surprises too struck in Budget like Tax holidays for IT Companies finally ends besides provision of MAT imposed on SEZ. 130 items brought into excise duty net for the first time with an imposition of 1%duty…MAT raised by 0.5%to 18.5%but Corporate tax reduced by 2.5%to 5%. Here, the Corporate India slightly get jerked but finally its consumers which faces the ire of such changes…in Hospitality, Aviation, Health Services, impact of adverse changes could be transparently felt. Investors can invest in Public issue of Public Sector Units which have target of RS.40,000 Crore worth of disinvestment this year. Foreign retail investors set to enter Indian equity Market through Mutual Fund s which would be another fatal for stagnant Indian Mutual Fund Industry with theirs prolong averseness with huge domestic potential from retail segment . In some way, if KYC norms lack, it will make India, another Mauritius-a dumping ground of black money. Tax treatment of debt and money market funds put on a par with fixed deposit…it may create complication in Indian bond market which was waiting for progressive slew of measures.

Micro Financial Institutions/MFIs, which must have given few stringent regulatory feed, instead been put aside with few healing touches…Priority Sector Lending/PSL violator Public Sector Banks have given hefty sum of money though the Regional Rural Banks/RRBs with excellent services have fixed on with a meager assistance of RS.500 Crore. It would have a welcome step, if Finance Minister could usher RRBs into swift modern operation with all the usual professional banking services that might create a level playing field in rural banking besides curtailing the relentless exploitation by Moneylenders and MFIs under the idealistic canopy.

Clarity is still away on new banking licenses, within or outside the Budget-Government must restrain to and livelihood following the economic liberalization. Sadly, thus Budget brought nothing more than a Pandora Box, full with disappointment and ambiguous complexity. If the Government is serious on leading Budget beyond the scenic beauty of statistics, it must think seriously on crumbling edifices of democracy-governance, accountability, fairness and public services. Fundamentals must be on place whether a nation dwells with any set of functional system….even the term “reform” needed a relooking by its own Mentors as its being overlapped by the scams and moralistic vandalism. We need a framework for national development, not a mockery institution that creates spaces for immoral characters.Post Script:-Some of sectoral data’s in this article have sourced from the Knowledge paper of Delhi based Research Organization, Center for Budget and Governance Accountablity/CBGA Atul Kumar Thakur March8, 2011, Tuesday, New Delhi Mail: atul_mdb@rediffmail.com

Being a regular reader of your writing on different platforms,I am familiar with your equal grip over the both theoretical and practical sensibilities.Besides,your regular tone in favour of peoples shows the reason of your being in journalism...Sir,I have high regards for your stand and conviction,my best wishes for materialization of such thoughts.I liked the Budget analysis,nothing could be more proper than this in evaluation terms...Arnab Sen,New Delhi

very methodical and thorough an analysis. the illusive garland of numbers presented to the public has cobwebs within it. this article carefully removes that garland and thus the cobwebs is there to be seen by us. hopefully some day we will have a common man's budget.

Apologies for the delay. My job has been extremely busy this past month.You have an interesting blog, I took a look at it. If I may be so bold to suggest to take it to the next lever I would recommend two things, 1 is to maybe keep it a little shorter, people like to read and to the point, second publish the dates when you will write and stick to them, once a week, once every two days etc. that way you will have people coming back to check your new programmed submissions.Thanks,Rodrigo Becerra MizunoMicrosoft Corporation Ltd.

About Me

Atul K Thakur is a Journalist, Writer and Policy Practitioner, with specialisation in the interface of politics and economics. His interests of writing and research is quite diverse and reaches to the areas of international affairs, with special focus on South Asia.
As an author/editor, his latest book is "India since1947:Looking Back at a Modern Nation"/Niyogi Books, an anthology on modern India. Now, he is editing the next volume with keeping in mind, India in future -- and writing a book that will have bearing on the contemporary political and social history of South Asia.
As a journalist/columnist, he has written for publications include: The Hindu, The Pioneer, The Kathmandu Post, The Daily Star, Businessworld, Governance Now, Tehelka, The Friday Times, The Himalayan Times, Mainstream, Seven Sisters Post.
Contact: M: +91-9873160118 / summertickets@gmail.com.